Oil prices are recovering today after yesterday’s loss as tight supply and expectations of a further draw in U.S. and global crude inventories provided support, although fears over the spreading COVID-19 Delta variant is limiting gains.
Brent crude oil is up 0.71%, trading $75.69 a barrel after losing 0.5% on Monday while U.S. Oil, West Texas Intermediate crude is trading $74.38 a barrel, up 0.41% after falling 0.6% in the previous day.
A poll done by Reuters indicated that investors expect that the U.S. crude inventories will fall for an eighth consecutive week, while gasoline stocks will also decline. The prediction comes as no surprise because crude stockpiles have declined steadily for several weeks, with U.S. inventories falling to the lowest since February 2020 in the week to July 2.
The International Energy Agency stated on Tuesday that the global tapping of oil in storage during the third quarter is set to be the biggest in at least a decade judging from early June data from the United States, Europe and Japan which showed a large stock draw.
Although oil is bullish today, investors still have a couple of things to worry about before going all in. Reports from around the world of surging infections have kept some investors cautious. The World Health Organization warned the Delta variant was becoming dominant and many countries had yet to receive enough doses of vaccine to secure their health workers. This variant threatens the progress made in developed countries and if it does so, oil demand will be declining further to 2020 levels, which will not augur well for the price of oil.
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Another cause for concern is that the OPEC+ is yet to make progress closing divisions between Saudi Arabia and the United Arab Emirates that last week prevented a deal to raise oil output, making another policy meeting this week less likely. If the members do not meet this week, a surge of panic may hit the market, thereby causing significant volatility.
What they are saying
The Kremlin stated yesterday that Russian President Vladimir Putin and U.S. President Joe Biden did not discuss OPEC+ or global oil prices during an hour-long phone call on Friday.
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Rystad Energy analyst Louise Dickson stated, “News of yet another oil stocks draw will likely have a larger effect on the WTI benchmark, but also a residual upswing to support other benchmarks such as Brent.”
What to expect
The U.S consumer price index (CPI) which is a measure for inflation in the country increased by 0.9% in June, jumping to 5.4% on the year. This was the largest gain since August 2008 and has resulted in a boost for the dollar as traders’ price in an earlier move to tighten monetary policy than previously expected. This is also weighing in on oil price but has no significant impact on the asset class.
However, other markets like the crypto, U.S stock market and Gold are feeling the heat as they were all down at the beginning of the New York Trading Session. Oil prices may still turn downward as the session continues.